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Franchising Sector Booming, New Research Shows

Contact: Terry Hill or Amy Bannon, 202-628-8000

WASHINGTON, DC Aug. 3 – Franchised businesses are expanding at a fast pace, while new franchise concepts are appearing in greater numbers, according to the first of a series of IFA Educational Foundation-FRANdata studies about the sector released today.

“More industries are choosing franchising as a method of expanding their business,” said International Franchise Association Pres. Matthew Shay, noting that the sector’s impact on the U.S. economy alone was recently determined to exceed $1.5 trillion--nearly 10 percent of the nation’s private-sector economy--and the source of jobs for more than 18 million Americans.

Drawing from a database of nearly 2,500 franchise concepts, researchers found that the number of concepts was growing in 17 of 18 industry categories. From 2003 to 2005, increases ranging from 67 percent in retail food to 4 percent in personnel services were discovered. Only the travel industry suffered a decline.

Fast food, with nearly 500 concepts, represented 20 percent of the total, including many new franchises appearing to meet the demands of ethnic food tastes. Retail and service business industries had new-concept gains of 11 percent each.

Entrepreneurs are creating new concepts with increasing frequency, the study determined. Over the past three years, nearly 900 concepts started franchising, 500 of those in 2005 alone.

How big is big? Based on franchise systems with at least one operating franchised unit, one third of all concepts had more than 100 units and nearly half had more than 50 units. Significantly influenced by the growing number of new concepts in the past few years, 25 percent had 10 or less units.

The franchising sector has witnessed a trend of multi-unit expansion in recent years, leading observers to expect that the percentage of systems with larger unit counts to increase in size. However, the study reported that no such increase occurred. The number of new concepts in recent years has led to a higher concentration of systems with relatively small unit totals.

The distribution of franchised units across industry classifications, according to the study, occurred in a pattern similar to concept distribution: fast food (19 percent), retail and service businesses (11 percent each) make up the largest shares.

The strongest growth in the number of franchised units—in excess of 25 percent--was experienced in three industry categories: building and construction, child-related and service businesses.

Following this study, each month the IFA Educational Foundation and FRANdata will release additional research reports about franchising including an investment analysis from the franchisee perspective, program requirements, financing, renewal terms and an analysis of special issues affecting the sector.

IFA is a 46-year-old trade group encompassing a broad membership of more than 1,000 franchise-parent companies, thousands of franchise small-business owners and operators, and hundreds of firms that supply goods and services to the sector. FRANdata (www.frandata.com), a Washington, D.C.-based research firm, is the leading source of information and analysis about franchising.

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Ed. Note: Each report in the series will be posted at IFA’s Web site:www.franchise.org. The Profile of Franchising series conducted from 1996 to 1998 can be located at the same Web address as can The Economic Impact of Franchised Businesses, conducted in 2003 for the foundation by PricewaterhouseCoopers, is also available at this location.